How To Normalize Your Cashflow With Milestone Invoices

You glance over at the calendar and realize that it's happened again: you’re underway with another consulting/contracting gig, things are getting just a little more difficult than expected and you’re starting to get that uneasy feeling as the end of the month closes in.

“What happens if there is no payday for all of this hard work? That contract had everything covered, right?”

Or maybe you’re feeling awfully confident that you're going to get paid but it might be weeks before you see a dime.

So much for freeing yourself of all the headaches and hassles of the corporate world: you can’t even work a single hour without worrying about paying bills, cash flow, or following up on invoices.

It’s all so worrisome that it starts to almost physically hurt. You would rather re-learn to type and code on a Dvorak keyboard than spend another moment thinking about overdue payments and contracts.

If you're like most people or companies that work on the web, you've probably come across a common mantra: "Get a contract signed or you’ll get burned!”

That’s great advice. But don’t just stop at contracts...what if there was something else you can do to ease the pain and significantly reduce the chances that you’ll find yourself chasing down a client for a giant lump sum that was due months ago?

Always Start (But Don’t Stop) With A Contract

Don’t use a contract? Do you think that your clients might scoff at your request to sign a contract, protecting yourself, before getting the project underway?

Here’s the rule that’s been repeated a thousand times - yet many contractors and freelancers still make the mistake: don’t start a project without a contract.

The monetary and time costs of taking someone to court for nonpayment are often much more significant than you may have initially thought. Depending on your location and jurisdiction, you could find yourself potentially spending a few thousand dollars in lost time and court fees to receive the money that you're owed.

Will it be worth the trouble? Will you be able to argue, successfully, in small claims court? Will the chain of emails you printed hold up in court?

Real contracts are made by real lawyers and they cost real money.
Don’t let that deter you! A contract written and/or vetted by legal counsel is
always worth the upfront cost. An extensive and exhaustive contract will give
both you and your client a sense of security. (Remember, sometimes clients get
burned on unscrupulous developers and designers that never deliver.)

Sure, it may have cost you a bit of money to get it written, but if things go sour on a big project, a good contract will pay for itself many times over.

Milestone Payments: A Win-Win For Everyone

Clarity of mission and purpose are keys to running a business that moves smoothly. Unsurprisingly, businesses that communicate and work with a high level of clarity also tend to produce the happiest clients.

A great way to not only keep you and your client happy is to bill moderate to lengthy projects in milestones. That is, bill incrementally, throughout the project, at intervals dictated by dates & durations (“every two weeks”) or by features and development (“database optimizations completed”).

That last one is definitely a tip worth remembering. It pays (literally) to have a flexible, milestone-based invocing/payment system so you're in complete control of how frequently you bill certain clients.

What Kind Of Intervals?

There are some standard milestone intervals you should definitely consider sticking with and one of the big ones is the initial deposit.

Getting a deposit paid will naturally vet any client who may seem “iffy” about moving forward on a technical project or large design task. If they won’t commit to a deposit so you can get underway, they may not consider your time to be as valuable as you do (and that is only going to lead to more headaches).

Other milestone payment intervals or situations to consider are project kill fees (if a client decides midway to cancel a project) and project completion fees that can cover final deliverables or pushing a large amount of work on to a production server environment.

Like Any Business, Cash Rules

Contracts give you a legal agreement, enforceable by law, regarding the exchange of your abilities and expertise for payment.

You can't pay for groceries with a PDF with someone else's e-signature on it. You need money in the bank. Checks. Deposits. Your business needs transactions and cash flow, not wild hopes about PayPal notifications coming through in the night.

There's really only one way to make sure that you're getting paid for the work that you're doing and that's by using the best practices that the industry has to offer and systematizing your project workflow. Set expectations. Aim to be paid regularly, normalize your cashflow and grow your business like a king.

Want to know a secret about best practices? They're boring and effective. For some people, this may be a genuine turn off. Simply put, they like rolling the dice with their businesses and livelihood. Could you imagine a brick and mortar business operating like this? "Oh, you like this bike? Here, take it home and be sure to pay us in 60 to 90 days."

If this sounds as ridiculous to you as it does to us, then why are there so many developers and agencies that run their business like this?